Money Buzz 3/04

A drop in 401(k) enrollment, micro-payments and more
Magazine Contributor
4 min read

This story appears in the March 2004 issue of Entrepreneur. Subscribe »

Beta on It

If the last time you thought about the second letter of the Greek alphabet was in college, it's time to get reacquainted. Today, a beta coefficient can measure volatility when building an investment portfolio.

A beta is calculated by comparing historic fluctuations of the value of a stock or fund to the movement of the market as a whole. The resulting beta coefficient indicates how closely the stock or fund performance tracks that of the overall market. To use betas in navigating market swings, optimistic investors would seek high beta stocks likely to soar in a rally, while those more interested in guarding against a downturn would opt for low beta investments less likely to swing with market gyrations.

"Beta doesn't work well on an individual stock level," says Tom Zwirlein, professor of finance at the University of Colorado at Colorado Springs. Since company news and other factors affect a stock's volatility, beta is best used when constructing a portfolio of many equity investments. "If you take the betas of all the stocks you hold, the average beta will give you a good idea if your portfolio will be as volatile as the market or more or less."

To find out more, visit

Information, Please

The number of employees signing up for 401(k) plans is dropping. According to a November 2003 survey by, a research provider for companies that sponsor retirement benefits, the rate of participation in 401(k) programs dropped 3.6 percentage points from last year. One way to get employees back on board is to give them more information. Independent financial advisors, for example, are eager to conduct seminars at workplaces. But you need to present employees with options without endorsing any one advisor or offering investment advice, says Lenny Sanicola, senior benefits manager for WorldatWork, an association for employee benefits and compensation.

"The issue is a liability concern," says Sanicola. Congress has been considering protection for employers who allow financial advisors to talk with employees, but hasn't yet passed any such law. In the meantime, the key is to educate employees-but not to recommend any strategy or stock. The best time to get a commitment from the investment firm operating your company 401(k) to talk with employees is at the time of initial enrollment, says Greg Thompson, a financial advisor with Southwest Business Corp., a San Antonio, Texas, investment firm. Because financial advisors make the most money on a new account in the first year, that's when business owners have the most leverage to lock them in to providing ongoing financial information to employees.

Small Change?

Looking for a cost-effective way to collect small fees for Web-based transactions? Two companies are reigniting the concept of micro-payments in an effort to help merchants do just that. San Francisco-based Yaga Inc.'s advanced payment system bundles a series of small purchases made over a period of time into one fee, which is then billed to a credit card. Currently used by media giants like Hearst Communications Inc. and Time Inc. to charge viewers for archived articles, the service enables merchants to collect amounts too small to justify credit card transaction fees, which range from 25 to 35 cents per transaction.

BitPass Inc., a Palo Alto, California-based micro-payment service, takes a different approach, selling prepaid passes ranging from $3 to $40 directly to customers, who use the passes to buy digital content for as little as 1 cent (although the cost is usually 25 to 60 cents). From poets to news digests, the company's hundreds of affiliated vendors pay a 15 percent fee for any transaction less than $5.

While both payment systems are viable options for collecting ancillary revenues, industry veterans are quick to warn against founding a business solely on the micro-payment concept. "There is a need for a way to collect small transaction fees," concedes Paul Hagen, who tracked the industry as a senior analyst with tech research firm Forrester Research Inc. and now runs San Francisco market research firm Hagen 20/20. "But to get $1 million in revenues [per] year, you need 20 million nickel transactions. The notion of building a business on microtransactions doesn't make sense."

The latest Wells Fargo/Gallup Small Business Index rose
points from the previous quarter of 2003, indicating improved small-business conditions.
SOURCE: Wells Fargo & Co.

An estimated
U.S. start-ups have relocated to Taiwan in the past two years to go public.
SOURCE: Ching-Yen Tsay, Minister of State of Taiwan

Jennifer Pellet ( is a freelance writer in New York City specializing in business and finance.

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